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The company was originally called 17-Bit Software, which grew out of the Microbyte retail chain in 1987, and specialised in cataloguing, producing and publishing an Amigapublic domain software library.[1] 17-Bit Software was controversial as it sold demos from the Amiga demoscene which were not released as public domain, without having any agreements with the demo groups, or attempting to reimburse them.

In 1990, a group of developers called Team 7[2] approached 17-Bit to publish their new game. They combined to form Team17,[3] and in 1991 published the fighting game Full Contact for the Amiga. Team17's intention was to produce a game that made use of the Amiga's unique capabilities and was not just a port of an Atari ST game. Team17 then went on to develop further Amiga games, incluing Alien Breed, Body Blows, Assassin, Project-X and Superfrog. Team17 also published titles in the UK for other developers such as AUDIOS and Eclipse UK. Almost all early titles were the result of liaising with freelance developers; there were few in-house developers.

Since the release of Worms, the franchise has gone on to be very successful, selling over 12 million units worldwide. This all-platform success contributed towards Team17's decision to cease publishing Amiga titles in 1997, as the platform had long been in a state of decline. They released Worms: The Director's Cut exclusively on the Amiga as a swan song. Team17 then focused on the PC market, releasing titles such as Nightlong: Union City Conspiracy (although this game was then adapted and released for the Amiga by ClickBoom) and Addiction Pinball, although they also produced some console-exclusive titles such as X2.

During the 1990s, Team17 had a feud with gaming magazine Amiga Power. Amiga Power had a fairness policy of giving a 50% score to an average game, instead of 73% to keep game producers happy,[12] a practice the magazine saw as inherently wrong. Team17 put several easter eggs in their games. For example, typing "AMIGAPOWER" into Alien Breed 2 would display a message criticising Amiga Power's review policy;[13] computer players at the easiest difficulty setting in Arcade Pool, F17 Challenge and Kingpin: Arcade Sports Bowling were named after Amiga Power staff members.[13] Two of Amiga Power former writers, Stuart Campbell and Jonathan Nash, claim that a Team17 staff member made allegations of bribery and corruption in French magazine Amiga Concept.[14] Team17 refused to supply review copies of games to Amiga Power, even demanding reviewers at its sister magazine Amiga Format sign declarations stating that they would not share their review copies with Amiga Power.[13] In response to Amiga Power reviews of Kingpin and ATR: All Terrain Racing, Team17 filed a libel action demanding the magazine stop "lying about their games".[15]